What Family-Run Businesses Can Learn From Crisis

Nadine Kammerlander - March 21, 2022

Tips for practitioners

As part of a study conducted by the WHU – Otto Beisheim School of Management, representatives from family-run businesses, alongside external stakeholders, were asked how they experienced the pandemic. Their responses led to the creation of a set of recommended actions for proper crisis management. Companies that take these suggestions into consideration will be significantly more prepared for the next potential crisis.

Signs of crisis and preparation

At the beginning of the pandemic, thanks to their dedicated management style, many family-run businesses clearly recognized the signs of trouble ahead. However, because they lacked the structure necessary to implement any precautionary measures, they stayed passive for far too long. This “fire brigade principle,” as one interviewee called it, is seen when a company holds back before finally “triggering the extinguisher.” This approach leads to an increased level of stress throughout the company and a reduced capacity to react. To avoid this, companies should establish open, transparent communication and engage in discussions with management and other business partners to implement a plan. Communication is equally important for employees during times of crisis. One company offered a positive example in that it kept its employees informed through a social media channel specifically set up for this purpose.

Administration and organization

It has been proven beneficial to swiftly establish steering committees and work groups, two units that offer the framework needed to classify crisis signals and develop solutions based on a trial and error. They also concern themselves with the implementation of such solutions within the company. To gain a fresh perspective, external stakeholders, such as consultants, financiers, and lawyers, can also be included in the planning. Family-owned businesses are particularly able to flex their muscle when it comes to the steering committees. With the group of shareholders being rather manageable, and thanks to the pre-established trust between the employees and the business, these steering committees can make decisions quickly. Companies should absolutely use this power to their advantage in crisis situations.

It is also imperative that routine processes have digital equivalents in order to cope with the administrative burden. Tasks that cannot be completed digitally will present major problems once it becomes no longer possible to complete them on site. As seen during the lockdown periods, such processes can decelerate profoundly, ultimately leading to an additional financial burden for the company in question. Companies should therefore face this problem head on to become better prepared for potential future crises.

Solvency and transparency

Family businesses displayed a more conservative attitude in this area, paying closer attention to accuracy. In fact, at the start of the crisis, very few companies predicted any scenarios, a recommended practice for modeling the effects, positive or negative, of any financial decisions. It is important to continuously collect data, not only in times of crisis, to get a feel for the profitability of any such decisions made. It is equally important to be transparent when working with financiers and to strive toward building a relationship based on trust. A company should fulfill its obligations with care and precision, as a late submission of pertinent documents would arouse suspicion and doubt concerning its integrity and reliability. Concise, proactive communication strengthens the trust between parties, which can help the company if it ever misses its targets during a crisis.

Communication

In many family-run companies, communication did not run smoothly during the pandemic. Although they made considerable efforts to engage with the companies digitally, many external stakeholders felt that important information was being withheld from them or only gradually released for tactical reasons. In many cases, internal communication could have also benefited from improvement. It may be worthwhile for family-run businesses to hire experts to train employees on how to best communicate through digital media. Successful communication with all stakeholders is imperative for successful crisis management and is the only way companies can get the right information and act quickly. Companies with sound communication strategies and controlled flows of information are better prepared for emergency situations.

Recovering and learning from crisis

When the tension eased up, family-run businesses were able to recover quickly. The loyalty of their employees proved to be a major advantage. That they stayed with these companies during the pandemic meant that their knowledge remained sharp. Additionally, their shared feeling of solidarity was bolstered by having gone through the crisis together. Trust and loyalty should always be rewarded, e.g., through team events or even a simple expression of gratitude in the form of a simple speech.

During the pandemic, routine processes were continually tweaked and developed. Family businesses took a pragmatic approach and concentrated first and foremost on the daily delivery of services. Unfortunately, this new knowledge was strongly tied to individual employees, and substantial documentation of the changes made to the daily workflow was often lacking. After a period of crisis, newly acquired knowledge should be reflected upon and put into written word. By doing so, the steering committees will have an overview of which measures worked well in response to the trouble. They can then develop a set of best practices, which can help guide them in the future.

Literature references and methodology

For this qualitative study, researchers conducted 52 interviews, primarily with representatives from family-run businesses. Also included in this group were high-profile external stakeholders, such as consultants, lawyers, and financiers. The interviewees were not chosen at random and were asked a semi-structured set of questions over a period of two to three months in 2020 and 2021. The companies that partook in the study are active in various industries and have a revenue between 5 million and 5.3 billion euros and on average 3,000 employees.

• Welz, D./Kammerlander, N./Welz, M./Zöller, M./Kost, J. (2022): Wie Familienunternehmen die Krise meistern. Lessons Learned aus 12 Monaten Covid-19 Krisenerfahrung, WHU – Otto Beisheim School of Management, Vallendar.